As corporations face growing pressure from shareholders to tackle climate change and disclose the risks stemming from extreme weather, chief financial officers increasingly find themselves in an unfamiliar role — that of chief climate officer.
Speaking to Yahoo Finance Live, Mars Inc. CFO Claus Agaard, member of the A4S’s CFO Leadership Council, said the tasks for finance chiefs are evolving with the urgency of climate change. It’s no longer just about the numbers, but framing corporate strategies aimed at addressing risk concerns posed by environmental and social issues.
“We think finance and CFOs can play a critical role. We’ve got hundreds of years of experience finessing how we measure things from a financial standpoint,” Agaard said. “We really believe that this [A4S] network can corral a huge network of people to make meaningful progress.”
The A4S network, which works closely with finance teams and policymakers around the world was first established by the Prince of Wales in 2004, to ensure in part, that companies integrated sustainable business practices, instead of focusing solely on short-term gains.
More than 15 years later, ESG — environmental, social, and governance — have become increasingly important pillars, by which companies are judged.
That has thrust veteran finance hands like Mark Hawkins into an evolving role. The Salesforce (CRM) president and CFO emeritus advisor recently stepped down from his daily duties as finance chief. As a founding member of the A4S’s U.S. chapter, he said financial officers are increasingly tasked with driving resource allocation, transparency, and accountability.
“The rising expectations of a CFO is so much broader,” Hawkins said. “[There is an] opportunity to impact your business in a strategic way, in an operational way, and financial way, and to really be there, shoulder to shoulder with the C suite to really help shepherd the company.”
Emily Kreps, global director of capital markets for CDP, which runs the world’s largest environmental disclosure reporting mechanism, said CFOs are critical to a company’s sustainability strategies, largely because of the visibility they have on the operational and financial side.
“Whether we’re asking about pricing in of capital expenditure plans or changes in [operating expenses] because you’re using different energy sources or different technologies, all of that flows through the CFO’s domain,” Kreps said. “The market is looking for very specific use of proceeds that go to further a companies or an issuer’s transition to a low cut, or meeting the needs of a low carbon economy. I think the CFOs have a really pivotal role to play both internally and externally, within an organization.”
That growth in ESG investing has driven that evolution. The percentage of asset managers required to invest in ESG products has nearly doubled in the last year, according to a report from EY. That number is expected to nearly double again in the next two years.
Investors now seek disclosures
When CDP first started 20 years ago, only a handful of investors requested carbon disclosures from firms, Kreps said. Last year more than 600 investors requested detailed disclosures from 12,000 companies, documenting everything from energy procurement and carbon emissions, to water security and soft commodity drive deforestation.
“On the asset manager side, their clients are demanding it whether they be asset owners or individual retail investors saying, I want a product that aligns with my values,” she said.
The lack of a universal ESG standard has muddled some of the progress made. While the European Union proposed the mandatory disclosures of sustainability metrics similar to financial reporting this week, the U.S. still has yet to establish metrics for what constitutes environmental or social impact.
Agaard said his company is forging ahead even in the absence of guidance. Mars has committed to reducing greenhouse gas emissions nearly 30% by 2025 and 67% by 2050. The firm has vowed to limit global temperature rise to 1.5 degree Celsius, in line with United Nations recommendations
“Yes, you need to standardize the measurement, but that shouldn’t stop us from making progress in the meantime,” he said.
Akiko Fujita is an anchor and reporter for Yahoo Finance. Follow her on Twitter @AkikoFujita